Analyzing Impairment Charges (FSET) In its fiscal year ended October 3, 2020, The Walt Disney Company (the Company) recorded a loss. Part of this loss was due to impairment charges. In its annual report the company stated: Goodwill and Intangible Asset Impairment Our International Channels reporting unit, which is part of the Direct-to-Consumer & International segment, comprises the Company’s international television networks. Our international television networks primarily derive revenues from affiliate fees charged to multi-channel video programming distributors (i.e., cable, satellite, telecommunications, and digital over-the-top service providers) (MVPDs) for the right to deliver our programming under multi-year licensing agreements and the sales of advertising time/space on the networks. A majority of the operations in this reporting unit were acquired in the TFCF acquisition, and therefore the fair value of these businesses approximated the carrying value at the date of the acquisition of TFCF. The International Channels business has been negatively impacted by the COVID-19 pandemic resulting in decreased viewership and lower advertising revenue related to the availability of content, including the deferral of certain live sporting events. The Company’s increased focus on DTC distribution in international markets is expected to negatively impact the International Channels business as we shift the primary means of monetizing our film and television content from licensing of linear channels to use on our DTC services because the International Channels reporting unit valuation does not include the value derived from this shift, which is reflected in other reporting units. In addition, the industry shift to DTC, including by us and many of our distributors, who are pursuing their own DTC strategies, has changed the competitive dynamics for the International Channels business and resulted in unfavorable renewal terms for certain of our distribution agreements. Due to these circumstances, in the third quarter of fiscal 2020, we tested the International Channels’ goodwill and long-lived assets (including intangible assets) for impairment In the third quarter of fiscal 2020, we recorded a non-cash impairment charge primarily on our MVPD agreement intangible assets of $1.9 billion . . . In the third quarter of fiscal 2020, the carrying value of the International Channels exceeded the fair value, and we recorded a non-cash impairment charge of $3.1 billion to fully impair the International Channels reporting unit goodwill. The $1.9 billion impairment of our MVPD relationships and $3.1 billion impairment of goodwill are recorded in “Restructuring and impairment charges” in the Consolidated Statements of Operations. REQUIRED a. The Company reported a $1.7 billion pre-tax loss for the fiscal year 2020. What would pre-tax income or loss have been without the above described impairment charges? ● Note: Do not use a negative sign with your answer. The Company would have recorded a pre-tax {#1} of ${#2} billion for 2020. b. Show the journal entry for 2020 to record the impairment charges using the financial statement effects template. ● Note:  Use negative signs with your answers, when appropriate. ● Note:  Select “N/A” as your answer if a part of the accounting equation is not affected. ($ billions) Balance Sheet Income Statement Cash Noncash Contra Contributed Earned Net Transaction Asset + Assets – Assets = Liabilities + Capital + Capital Revenue – Expenses = Income Impairment charge {#3} {#4} 0 {#5} {#6} {#7} {#8} {#9} {#10} MVPD agreement N/A {#11} {#12} {#13} {#14} 0 {#15} {#16} 0 N/A {#17} {#18} N/A Totals + – = + – = c. If circumstances changed in the future and the fair value increased either the MVPD agreement or the goodwill related to the International Channels, could the company reverse a portion of the impairment losses? The Company would {#19} to reverse the impairment losses as reversals are {#20} under the U.S. reporting standards.

Computing and Comparing PPE Turnover for Two Companies Texas Instruments Incorporated and Intel Corporation report the following information: Texas Instruments Intel Corp ($ millions) Sales PPE, net Sales PPE, net 2020 $14,461 $3,269 $77,867 $56,584 2019 14,383 3,303 71,965 55,386 Compute the 2020 PPE turnover for both companies. Round answers to two decimal places.Texas Instruments {#1} Intel Corp. {#2}

Recording the Sale of PPE Assets As part of a renovation of its showroom, O’Keefe Auto Dealership sold furniture and fixtures that were 8 years old for $6,000 in cash. The assets had been purchased for $65,000 and had been depreciated using the straight-line method with no residual value and a useful life of 10 years. Prepare the journal entry to record the sale of furniture and fixtures. Account Debit Credit {#1} {#2} {#3} {#4}

Computing and Recording Depletion Expense During the year, Eldenburg Mining Company purchased land for $9,000,000 that had a natural resource reserve estimated to be 625,000 tons. Development and road construction costs on the land were $525,000, and a building was constructed at a cost of $62,500. When the natural resources are completely extracted, the land has an estimated residual value of $1,500,000. In addition, the cost to restore the property to comply with environmental regulations is estimated to be $1,000,000. Production in the first and second year was 75,000 tons and 106,250 tons, respectively. a. Compute the depletion charge for the first and second year. Round answers to nearest whole dollar amount. First year ${#1} Second year ${#2} b. Prepare journal entries to record each year’s depletion. Account Debit Credit {#3} {#4} {#5} {#6}

Reporting PPE Transactions and Asset Impairment Note B from the fiscal 2018 10-K report of Williams-Sonoma, Inc., (February 3, 2019) follows. Its statement of cash flows reported that the company made capital expenditures of $190,102,000 during fiscal 2018, impaired assets of $9,639,000, and recorded depreciation expense of $182,533,000, excluding amortization of intangibles. In addition, the company reported a loss on the disposal of property and equipment of $570,000. Note B: Property and Equipment Property and equipment consists of the following: ($ thousands) Feb. 3, 2019 Jan. 28, 2018 Leasehold improvements $950,259 $950,024 Fixtures and equipment 836,400 800,003 Capitalized software 733,941 621,730 Land and buildings 175,181 173,457 Corporate systems projects in progress 39,416 65,283 Construction in progress 7,205 8,615 Total 2,742,402 2,619,112 Accumulated depreciation and amortization (1,812,767) (1,686,829) Property and equipment—net $929,635 $932,283 We review the carrying value of all long-lived assets for impairment, primarily at a store level, whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We review for impairment all stores for which current or projected cash flows from operations are not sufficient to recover the carrying value of the assets. Impairment results when the carrying value of the assets exceeds the estimated undiscounted future cash flows over the remaining useful life. Our estimate of undiscounted future cash flows over the store lease term is based upon our experience, historical operations of the stores, and estimates of future store profitability and economic conditions. The future estimates of store profitability and economic conditions require estimating such factors as sales growth, gross margin, employment rates, lease escala- tions, inflation on operating expenses, and the overall economics of the retail industry, and they are therefore subject to variability and difficult to predict. If a long-lived asset is found to be impaired, the amount recognized for impairment is equal to the difference between the net carrying value and the asset’s fair value. REQUIRED Prepare journal entries to record the following for fiscal 2018: a. Depreciation expense b. Capital expenditures c. Impairment of property and equipment (Assume that impairments and write-downs reduce the property and equipment account, rather than increasing accumulated depreciation.) d. Disposal of property and equipment Ref. Account Debit ($ thousands) Credit ($ thousands) a. {#1} {#2} b. {#3} {#4} c. {#5} {#6} d. {#7} {#8} {#9} {#10}

Computing and Assessing Plant Asset Impairment Zeibart Company purchased equipment for $180,000 on July 1, 2019, with an estimated useful life of 10 years and expected salvage value of $20,000. Straight-line depreciation is used. On July 1, 2023, economic factors cause the fair value of the equipment to decline to $72,000. On this date, Zeibart examines the equipment for impairment and estimates $100,000 in future cash inflows related to use of this equipment. a. Compute the impairment loss, if any. ${#1} Enter as a positive number. Enter $0 if the equipment would not be considered impaired. b. Determine the amount of depreciation Zeibart would record for the 12 months from July 1, 2023 through June 30, 2024. ${#2} Hint: Assume no change in salvage value. Round amount to the nearest whole dollar amount c. Prepare the journal entries to record the impairment loss and depreciation expense for the 12-month period. Select ‘No debit’ and ‘No credit’ in the Account fields of the first entry if there was no impairment. Account Debit Credit {#3} {#4} {#5} {#6}

Computing Depreciation, Asset Book Value, and Gain or Loss on Asset SalePalepu Company owns and operates a delivery van that originally cost $54,400. Straight-line depreciation on the van has been recorded for three years, with a $4,000 expected salvage value at the end of its estimated six-year useful life. Depreciation was last recorded at the end of the third year, at which time Palepu disposed of this van. a. Compute the net book value of the van on the sale date. ${#1} b. Compute the gain or loss on sale of the van if its sales price is for: (When applicable, use a negative sign with answers to indicate there is a loss on sale.) 1. Cash equal to book value of van. ${#2} 2. $30,000 cash. ${#3} 3. $24,000 cash. ${#4}

Computing Depreciation Under Straight-Line and Double-Declining-Balance A delivery van costing $27,000 is expected to have a $2,000 salvage value at the end of its useful life of 5 years. Assume that the truck was purchased on January 1, Year 1. Compute the depreciation expense for Year 1 and Year 2 under each of the following depreciation methods. Do not round intermediate calculations. Round answers to the nearest whole dollar amount. Year 1 Year 2 a. Straight-line ${#1} ${#2} b. Double-declining-balance ${#3} ${#4}

Computing Depreciation and Accounting for a Change of EstimateIn January, Rankine Company paid $10,200,000 for land and a building. An appraisal estimated that the land had a fair value of $3,000,000 and the building was worth $7,200,000. Rankine estimated that the useful life of the building was 30 years, with no residual value. a. Calculate annual depreciation expense using the straight-line method. ${#1} b. Calculate depreciation for the first and second year using the double-declining-balance method. Round to the nearest whole dollar amount.  Use rounded answers in subsequestion calculations.   Year 1 ${#2} Year 2 ${#3} c. Assume that in the third year, Rankine changed its estimate of the useful life of the building to 25 years. If the company is using the double-declining-balance method of depreciation, what amount of depreciation expense would Rankine record in the third year? Do not round until your final answer. Round answer to the nearest whole number. ${#4}

Identifying and Accounting for Intangible Assets On the first day of the year, Holthausen Company acquired the assets of Leftwich Company, in- cluding several intangible assets. These include a patent on Leftwich’s primary product, a device called a plentiscope. Leftwich carried the patent on its books for $2,100, but Holthausen believes that the fair value is $280,000. The patent expires in seven years, but competitors can be expected to develop competing patents within three years. Holthausen believes that, with expected techno- logical improvements, the product is marketable for at least 20 years. The registration of the trademark for the Leftwich name is scheduled to expire in 15 years. However, the Leftwich brand name, which Holthausen believes is worth $700,000, could be applied to related products for many years beyond that As part of the acquisition, Leftwich’s principal researcher left the company. As part of the acquisition, he signed a five-year noncompetition agreement that prevents him from developing competing products. Holthausen paid the scientist $420,000 to sign the agreement. a. What amount should be capitalized for each of the identifiable intangible assets? Patent ${#1} Trademark ${#2} Noncompetition agreement ${#3}   b. What amount of amortization expense should Holthausen record the first year for each asset? Round to the nearest dollar. Patent ${#4} Trademark ${#5} Noncompetition agreement ${#6}